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Being risk averse is never easy when the stock market is topping. Restraint could mean missing out if the market has a significant break out. A strong rally would leave you looking like a silly contrarian, and people would wonder why you sat out on such an obvious uptrend.

I’ve been cautious over the past four months, missing out on the summer uptrend. I’m in the black, but reaping about half of the S&P500 YTD return. I remain concerned. Last week I took additional profits and now stand at 90% in cash.

As noted in previous articles, the market needs Q2 earnings growth of 5% to maintain valuations. So far reports are coming in at 6%. All appears well. With low borrowing costs and stagnant wages, companies are still able to squeeze out profits in spite of weak consumer spending.

My concern is that there is too much euphoria, especially among retail investors that started jumping into the market last year. The market is probably fairly priced, but there is too much disregard for obvious headwinds. To name a few- timid global demand, geopolitical conflicts, overleveraged private & public debt, and overly optimistic growth projections.

Corporate share buy backs continue to distort the appearance of earnings. For example, Apple reported Q2 earnings growth of 19.6%…but without buy backs their earnings growth would have only been 12.3%. [as reported by S&P Dow Jones]

In the past year S&P Dow Jones reduced their market growth forecast by 4%…but continue to project 11% annual earnings growth for the next 5 years.

Investor’s Business Daily currently has the market status as “uptrend under pressure.” So far this year they’ve recorded 112 days where the market was either “under pressure” or “in correction”- that’s 54% YTD.

I remain a contrarian. With QE3 coming to an end in October, the second half of the year could be more volatile than what we’ve seen to date.